How to Scale Commercial Real Estate

Feb 17, 2022

Our guest for today is Darren Smith, an industrial commercial real estate investor. He partners with people looking to make a secured and consistent return on their money backed by cash-flowing real estate.

We talk about a variety of topics in such a short amount of time, especially his experience in investing in industrial real estate properties.

He reveals the strategies and decision-making processes that helped him purchase over $10 million in real estate through his almost 2-decade career. 

[00:01 - 04:41] Opening Segment

• Darren Smith talks about his journey to industrial real estate
• Why he build a company, only to let it go in the end

[04:42 - 11:34] Shifting to Industrial Real Estate

• Darren talks about his process for selecting the person who will lead his company
• This creative lead generation technique sets Darren apart from his peers
• The most important factor for Darren when buying properties

[11:35 - 16:56] Investing in Industrial Real Estate

• Here are Darren’s tactics to protect his team from non-renewals
• Why building relationships and rapport with sellers is important
• Should you be in many markets, finding deals?
• • Darren won’t advise this, and here’s why

[16:57 - 19:56] Closing Segment

• A tool or resource you can’t live without
• • Google Sheets
• A real estate mistake you can help other investors avoid
• • Do not jump into real estate right away
  • Build your bank money first
• Your way to make the world a better place
• • Providing job opportunities to people
• Reach out to Darren
• • See links below 
• Final words

 

Tweetable Quotes

“Everything that we do in real estate, it all comes down to that relationship and that rapport with sellers.” - Darren Smith

“I'm not saying don't make the leap [to real estate] eventually, but just make sure that you have enough of a base and then also that you've put some bank money in your portfolio where you have property leverage.” - Darren Smith

“If you're just going out submitting cash offers or blind offers through brokers, you basically have no shot in [the industrial] market.” - Darren Smith

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Email darren@solidgrowthproperties.com to connect with Darren or follow him on LinkedIn. Do you want to sell your property fast without having to go to an agent? Visit Solid Growth Properties now.

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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.  

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Email me → sam@brickeninvestmentgroup.com

 

Want to read the full show notes of the episode? Check it out below:

 

Darren Smith  00:00

Like everything that we do in real estate, it all comes down to that relationship and that rapport with sellers, and it's the same thing with your tenants. So having those conversations, finding out what are their needs and desires and hey, what's fair and work that out through the process, and if you can pull it off great, you know, do it. I know some of my tenants will another one of my tenants is the Army Corps of Engineers, there's zero chance they're going to agree to that they are so fixed in their ways. And so some you just work it out in other ways.

 

Intro  00:23

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

 

Sam Wilson  00:35

Darren Smith served almost six years in the Army, and he spent the last 18 years as a professional real estate investor. He has flipped rented and wholesaled hundreds of residential properties, and in recent years, has purchased over $10 million in real estate. And now he's full-time in commercial industrial real estate assets. Darren, welcome to the show.

 

Darren Smith  00:54

Hey, thank you very much for having me on Sam. 

 

Sam Wilson  00:56

Hey, man, the pleasure’s mind. same three questions I ask every guest who comes on the show. In 90 seconds or less, can you tell us where did you start? Where are you now? And how did you get there?

 

Darren Smith  01:03

I started back in the service, as you mentioned in 1997, did six years in there, got out of the service did a lot with computers. So I continued on with that for quite a few years. But at the same time doing residential real estate I had a mentor who was also in computers who did real estate and I sat next to him for about a year or two. That's how I got started real estate, was just Rich Dad, Poor Dad reading his books, following him along and picking his brain, everything I could go into his rentals. And long journey up and down had some big failures to be perfectly honest in the crash. But started back at the bottom of real estate back in about 2012, 13, was an assistant to a wholesaler, eventually start off doing that on my own. When I moved out to Colorado, build up a residential real estate business, there over several years. And I was doing really well, move back to Pennsylvania, which is where I am currently. And over that time last four years have done the transition from residential to now, I am 100% industrial real estate.

 

Sam Wilson  01:58

That is fantastic. Let's take a few minutes and talk about your transition. Because you're back in Pennsylvania, transition out of residential into commercial because I think it's a fascinating kind of story how you had a functioning business and it was making money. And you hung up the cleats and said, “Hey, I'm going to commercial real estate.” tell us that backstory.

 

Darren Smith  02:18

That's pretty much what it was I have done residence for a while and I liked it. Don't be wrong. It was a great business for a long time. But I really saw friends doing the commercial side, I have some that were doing all aspects of commercial office retail, industrial and multifamily. And then but most of my friends probably 90% are only doing multifamily commercial. And I kind of looked at all those options. And we can get it if you want. But I chose the industrial avenue, and that's the one I've stuck with. So I've been doing that for a couple of years while running my residential business. Thankfully, I had some awesome employees, they just, they do fantastic work. They allow me to run my business in Colorado while I live in Pennsylvania. And actually, they ran the residential business in Pennsylvania as well. So they ran both sides of the country. And it just didn't take me much time. And so I was able to do both. But as I scaled that up, as I scaled industrial, you just start looking at where you're spending your time where you're getting your return from. And then where you see yourself, I read a book called Vivid Vision this last summer. And it really spoke to me, it's it's probably a lot of things your listeners have already heard. But when you really like sat down and went through an actual day and close your eyes and think about it, I didn't see myself in a residential space anymore. And so my employees, they've been so fast, fantastic. I knew if they were able to take this and run with it on their own, they practice even running it anyway, I thought how great would that be for them. So it was a win-win because it's great for me, because now I can focus 100% on industrial. And as we all know, when you do switch from residential commercial, you basically had a zero or two to every deal you're doing. And so it allowed me to scale and it will much faster, but also them I mean, the lifestyle they're gonna be able to have now running and owning that business and having all the profits I think is going to be great for them as well. So it kind of was an easy decision and you know, knock it out a couple of months, it was pretty quick.

 

Sam Wilson  04:00

That is absolutely intriguing. Because you read the book, and you said, you knocked out a couple of months, you said, Hey, man, I'm out. I'm moving into commercial full time, you gave the company away, right? That's right. So most people, and this is not maybe this is the greed monster in me or whatever it is. Or maybe just like, hey, I've put years and years into building this company. And the last thing I want to do is, after all my blood, sweat and tears, because it's really difficult to build a functioning company that produces a regular steady income, I'd say hey, look, I've earned the right to let you guys continue to operate this and I will collect you know, whatever it is maybe last but I'm gonna be more of a hands-off owner and you said instead look, I don't want the middle distraction, and I can bless you guys have a good time. That's courageous.

 

Darren Smith  04:42

Why do we ultimately do a lot of what we're doing here? It's obviously, there's a lifestyle component to it. But you do get to a point where giving back you know is important. And you know, we think of charities we think of you know, rotary and do stuff in your church, but you know, the people around you like charity starts with very starts with your employees as well and they have given so much to me, so I really do see it as you know, it could be seen as generous doing that to them. And maybe that was, but at the same time, they gave so much to me. So they were generous to me for so long. And as I said, it also allows me that time and that mental bandwidth to just focus on industrial, so I will benefit out of this, they will benefit out of this. And so I guess I just didn't see it quite that way when I was going through it. 

 

Sam Wilson  05:21

And that's incredible. Very cool. So I love it. So how did you select? I'll get off of this, like, I'm hammering home on this, but how did you select the person that would lead this company? Were they already at the top? Was it already like main lead person, you're like, “Hey, man, I'm gonna give you the company.” Or how did you decide who gets equity? And who doesn't? I mean, that seems like it'd be a tough decision when you're basically giving away the farm.

 

Darren Smith  05:40

It was a bit of a challenge. But since they've run it for so many years, it really, you know, the top leaders, they were pretty obvious. So it wasn't that hard of a choice. It was just split equally, you know, between the people who were already running the show.

 

Sam Wilson  05:54

Gotcha. Fantastic. I love that. So let's talk industrial. Where are you finding opportunity right now? And let's start with that I've got about 12 questions for you, you can think of right out of the gate. But tell us how you're finding opportunity on industrial, how you plan on scaling that.

 

Darren Smith  06:08

That was what was so great about starting with residential is that is, you know, Doggy Dog out there, it is so competitive. I mean, I've literally spent millions of dollars in marketing on the residential side. And so to take all the lessons learned over there, and then apply them back to commercial, because honestly, super simple. It's the basic core things that were working. And I did them at a very high level. So I in fact, I have examples here, I use the auto pin handwritten letters, I put a real stamp on them, I put a business card and everyone with my picture on it, then. So everything has to just be high class in how all your communications are done. And so I just took the same residential marketing I'm doing and I started with mailers. And that has been really successful. For me, the cost is, gosh, a 10th of what I used to be spending on residential, and yet I get much more many more leads from those letters that I send. And people talk about that I just every week, somebody will tell me, “Hey, I love that you wrote me a letter” or I love that, you know, you know that you wrote this out, my kids would have just typed this where they say, “Hey, you know, look like good looking guy” or whatever, you know, they talk about the picture. And so being able to see me as they're talking on the phone, so I want to propose to you, if anybody's looking on the commercials, you're doing residential, don't send out your 35 cent postcards on the yellow thing, you're not going to get calls make your numbers are so much smaller. And my whole list is less than 6,000 properties. Right now. I'm growing that a little by little but not that much wants to do with hundreds of 1000s, you know, on our list on so much debt per month. Oh, yeah. Yeah. So that was how I made that transit. That's how I'm finding opportunities. I have started doing cold calling here recently. But again, I don't do the hired out yet. I may do it at a small scale. But I don't do the triple dialers I do one at a time because I want to have that high level of professionalism. You know, I want to do it, where I'm speaking with the person and it talks to them. And I have great conversations, I don't get the calls of, hey, take me off your list or worse, as you all know, when people are calling me it's like, Hey, thanks for writing, you know, what's this all about? And it's just I love the conversations I have with commercial property owners, because it's a different level of sophistication. You know, when you talk about why I made that switch as well, I think at the aggravations that we have closing deals where you make 10 $20,000. And it's just like, oh my gosh, that the headaches can drag out for six months. And not that industrial doesn't have long closing times. I mean, they can take you know, six months or more I've I closed property last year, I was talking to the guy for over two years. But when you get to the end of the road, one your gains and your profits are significantly more. But two, you're dealing with a different level of sophistication and people that they have their lives together for the most part, you're not coming to bail them out of, you know, whatever tragedy that's, you know, half the time self-inflicted, a lot of these are there people that have money, I close to a 40,000 square foot warehouse last Thursday, and he had more than enough money. He didn't even eat the money from the sale. But I was able to help him with simplifying his life in some ways getting him an income stream, we did a partial seller finance on this one. So it helped them with some taxes. Just got to where I want to be. And just it was much easier conversation.

 

Sam Wilson  08:59

That's fantastic. Yeah. I love that in the autopen handwritten letters. Is that a machine that you have there at your house or I mean, or your office? What do you use, seven, nine out? Or what's that look like?

 

Darren Smith  09:09

I don't, I use two companies. I use Open Letter Marketing, which is a great one that's kind of turnkey, they put the stamp on, they mail it out. I have mine delivered, unsealed. And without a stamp, I like to put a little bit of a different stamp on again that that touch. I think though, I just ordered a couple of 1000 with a bouquet on them. So I use pioneer direct and they mail them to me handwritten open with no stamp. 

 

Sam Wilson  09:32

Yeah, that's super cool. Yeah. And it's funny that the creativity in that and it's the little tweaks that set you apart, right when you're doing, you know, direct mail or when you're doing cold calls or things like that. It's like it doesn't take a lot to be different. And I've heard some really interesting stories on this show. I mean, there's one guest who sends a Rubik's Cube in a box and it says, Hey, let's figure this out. Right. So it sends all of his information with a Rubik's Cube but let's figure this out. And he gets calls from it. Like, I mean, he's I think he's gone so far as to send them a pair of shoes like there was some question killer deals like, Hey, here's a pair of shoes. You know what, I can't read what the story was behind that. But it's really unique just going the act, and that's not scalable, right? Like, it's not scalable, but yet, I think it puts you at the front of the line, which is, you know, that's where you need to be. So talk to us about the type of industrial you guys are doing. Are you doing manufacturing and you want warehousing? Or what are you getting into?

 

Darren Smith  10:21

For me, it's really, I focus more on the square footage, and, you know, the zoning ICSP right. And then for me, it's location is the absolute most important factor for what I'm buying. As far as the, you know, what they're doing in the building, it's all sorts of things. It is it's, you know, general warehouse, one of them was actually mostly office, you know, it was kind of like that flex space, a building spot. It's a forklift rental repair service, you know, company did a cabinetry making, you know, business last year, that was a huge 152,000 square feet building, I did not buy that myself, that was an assignment. So I'm doing both, buying, you know, and assigning properties. But really anything as long as the things you're looking for is, you know, the location has to be number one, the condition of the property, you know, when things have been upgraded, all the same stuff, you look at a house, just, you know, different terms you have to learn, but really in commercial comes down to the tenant, that is absolutely the most critical thing that you're looking at. And that's what banks are going to look at. So when I'm on all my whole properties, I get bank financing for the majority of it, you're just never gonna find, you know, cheaper debt, I'm getting three and a half percent debt right now locked in for seven years. I mean, you can't beat that. And so having that long-term tenant in who is, been there a long time with their longevity, then have they invested in their building themselves, you know, what's their credit rating, you know, haven't been profitable last several years. So those are things you really want to make sure that you lock-in.

 

Sam Wilson  11:35

Cool. Well, let's talk about this. I mean, one of the problems that I see in long term leases in triple net leases, which a lot of imagine that's what you're dealing with your double net, or triple net leases, is that they don't renew, but every three or five, or whatever the renewal periods are, in a time of hyper, we're in, you know, accelerated inflation, how do you protect yourself in that?

 

Darren Smith  11:58

That's an excellent question. Because you're right, that's very real. And it's something that we weren't having to deal with before. So I'll tell you one way of doing it, and I lucked into this, I inherited the lease that's on the building I closed last week, but it is tied to the Philadelphia consumer price index for all goods and services. So the rent automatically increases every year based on inflation. So if you can get that clause in your lease, you're obviously doing pretty well. And it's helpful. I do have some buildings that obviously don't have that big 10. And they have, I think, you know, two and a half or 3%, you know, kind of annual increases. And those, you're right, my costs are definitely going up every single year. But what I'll say is that your costs, like let's say, you know, utilities, if it's a gross lease, and you're paying utilities, they're going up significantly, but as your overall intake of your property, it's not a huge part of that income. So let's say your expenses on it are 10%. Well, even if those 10% expenses go up 50% In year, let's just say some crazy number, but really, your expenses on the property have only got 5% as a total rent. So since my rent on the property went up, 3%, I'm either you know, breaking even so I didn't make any more money that year. Or maybe I lost just just a little bit. But my principal paydown is obviously still going, you know, in the right direction. And my appreciation for the properties in general is going up. So you look at what industrial is going up, I think nationwide went up 9% last year, and I think even more the year before. And so I'm kind of baking in appreciation over time that I know when I do have renewals that come up, I'll be able to capture that. But as long as I can ride out through that period, I'm not concerned if I made the same cash flow one year to the next or maybe lost a small percentage, because I know overtime principal pay down and appreciation will make up for that.

 

Sam Wilson  13:38

Right. Yeah, that's intriguing. How hard would it be to on lease renewal? Or how agreeable do you think tenants would be to saying, Hey, we're tying all our leases now to the Philadelphia Consumer Price Index. I mean, as a landlord, the owner, I mean, that's, especially when we see numbers, just I mean, we saw what 6.7% published, you know, maybe not even the actual because they don't count the things that all of us have to pay for every day. So it's like, you know, how hard would that be to pull off? You think?

 

Darren Smith  14:05

Sam, that's a great question. And I just learned about on this, I read that for the first time a couple of months ago. And there's the first lease I have with that. So I wish I could speak more to it, but I can't. What I will tell you is like everything that we do in real estate, it all comes down to that relationship and that rapport with sellers, and it's the same thing with your tenants. So having those conversations, finding out what are their needs and desires and hey, what's fair and work that out through the process. And if you can pull it off great, you know, do it. I know some of my tenants will another one of my tenants is the Army Corps of Engineers, there's zero chance they're going to agree to that they are so fixed in their ways. And so some you just work it out in other ways,=.

 

Sam Wilson  14:39

Right, yeah. Good luck on that. Good luck. The Corps of Engineers to agree to a CPI-based or you know, the least tied to the CPI. That's wild man, that's absolutely fantastic. You buy in across the country or you sticking sticking to specific markets?

 

Darren Smith  14:52

I'm sticking to just my market, if I can't drive there in two hours, I'm not going to look at it and I know people that do it both ways. And for me, I love it. have ADD, and I need to focus. Like I can't do too many things at one time, my brain just doesn't function that way. So if I'm in too many markets, I want to be the master of where I'm at.

 

Sam Wilson  15:08

Yeah. How did you build that? 6,000 property list? I mean, it seems like this would be a fairly broker-controlled asset class. So and you're going all off-market direct to seller. Is that right? Are you also working with brokers? I do questions in there. Sorry.

 

Darren Smith  15:25

I do both. I work with brokers as well. In fact, I've wholesale buildings through brokers, where I have it under contract to either lease or sell the building. And I have that worked out with the seller, they know the owner, they know what I'm doing. And so I've listed properties on the commercial MLS, if you want to call it that, and sold them that way. So brokers are a great asset, one of the properties that I own. In fact, the first property I bought was a listed property, it just sat for a while. But I still have to talk with the sellers. I'd never buy a property where I'm not sitting down with the seller because I got partial seller finance on that one as well. And so you need to have that conversation to really make it a win-win. If you're just going out submitting cash offers or blind offers through brokers, you basically have no shot in this market. Don't even waste your time to be honest, completely wasting brokers' times waste anybody's time, where I get my data, I use Reonomy, R-E-O-N-O-M-Y, is a source I've been using last year, I recently got costar access as well. And so I've been pulling lists from there. And I there's a I think it's easy excel.com or there's it Maury is his name. And he has a website. And he makes Excel macros where he will combine all your data for you and do this cool stuff. So he makes these macros I combined my files together. And then that's what I take. And I load that into Mojo dialer. I send that off to my mailer to get the kids into.

 

Sam Wilson  16:37

Right, yeah. And I'll link to Maury as well. I know exactly you're talking about, I think he's somewhere out in California. But yeah, it makes them really cool. I mean, it does all wizard. Anything. Yeah. And you will custom build some crazy widgets inside of Excel that you're like this thing could launch a rocket. What are we doing here? That's really cool. I love it. Man. This is great. Darren, thanks for coming on today. I've certainly enjoyed this jump here into the final four questions. The first one is this, which you've answered like you've taken most of my first question already. But what is one tool or resource like digital software, something along those lines you find you can't live without?

 

Darren Smith  17:11

Ah, I go complete old school Google Sheets. I've had all these high powered CRMs, and Salesforce and all this stuff. And I gone back to Google Sheets. And my most important thing is I put a column with the next follow-up date. And every morning, I just sort by that date and what's do, knock them out.

 

Sam Wilson  17:27

Right. I love that. That's great. What is one mistake you could help our listeners avoid? And then how would you avoid it?

 

Darren Smith  17:32

The one I probably did was, I made many, many, many, when it comes to mind is I got laid off from a very well-paying computer consulting job six years ago, and I thought I got this real estate thing. I was making money. And I was doing okay, and my wife and I recently got out of her fellowship. So I thought, Okay, I got this, I can make the transition, I don't need to go get a job, because I could have got one the next day. And I did. And that was a mistake. Because if I had gone back and got another one for maybe a year or two, I would have been able to take more of my profits from real estate and hold onto more properties. And I would be further along than I am right now had not done that. So I'm not saying don't make the leap eventually. But just make sure that you have enough of a base and then also that you've put some bank money in your portfolio where you have a property leverage that way, because your W2is a huge asset for that. And I didn't have that for a number of years.

 

Sam Wilson  18:22

Right, man, I love that. That's great. Cool. Question number three, when it comes to investing in the world, what's one thing you're doing right now to make the world a better place?

 

Darren Smith  18:29

So for investing side we're talking specifically just with the business and not charity. What I'm trying to do is I think the, everything I see like Mike Rowe doing and these other people were that there were jobs where people, where skill training is so critical right now and so lacking. And so we have a manufacturer association here in town. In fact, I'm meeting with the president of that next week, we're having breakfast. And I want to matching up the people who are in my buildings that have these jobs, these high-skilled jobs that are needed with the manufacturer association. So we can put those two together for apprenticeships and things like that. I said, it's in my vivid vision I have it all planned out what I want to do perfectly the full because I am in the beginning stages of that. It's what I am working on at this time. 

 

Sam Wilson  19:05

I love that there and our listeners want to get in touch with you or learn more about you what is the best way to do that? 

 

Darren Smith  19:09

Yep, my company is Solid Growth Properties. So Darren, D-A-R-R-E-N, at solid growth properties dot com. Shoot me an email I'm happy to connect with any and everybody whether it be they're interested in industrial real estate, or whether on the private money side, I do make quite a bit of money and send out a lot of checks every week to my private lenders. And that works really well for them. 

 

Sam Wilson  19:28

Fantastic, Darren. Thanks for your time today. Appreciate it.

 

Darren Smith  19:29

Thanks for having me on. Sam. Have a great day.

 

Sam Wilson  19:31

Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode